It’s easier than ever to transfer funds seemingly instantly with your smartphone, but in reality it may take days for the money to become available, just like with a check.

And sometimes a good old-fashioned paper check can feel like it takes an eternity to clear.

The good news is, that may be changing. The bad news is, it’s happening at the speed of checks.

The Federal Reserve is looking to speed up the process of sending money. It sent 19 proposals, including those for using credit cards and cryptocurrencies for payments, to the Faster Payments Task Force, according to a report in The Wall Street Journal. The group, along with the Secure Payments Task Force, both of which are made up of more than 500 members including banks, financial technology companies, consumer groups and well-known retailers, will review and rate these suggestions.

Proposal details won't be made public until next year, a spokesman at the Federal Reserve Bank of Chicago said.

Though the proposals weren't disclosed, there are a few financial tasks that could use revamping. In an era where companies are capitalizing on smartphone apps to link users and their money with other users or retailers — think buying flowers from 1-800-Flowers
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on Facebook Messenger
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— and an entire digital currency is developing, it still takes days, sometimes more than a week, for a check to clear.

What gives?

For all of their seeming simplicity, checks can get complicated — there are numerous ways they can be processed, and even if a check clears quickly through electronic processing that doesn’t necessarily mean the funds are immediately available. Regulation CC is a federal law that determines how long it takes for funds to be made available based on the type of transaction (cash, type of check, wire transfer, for example), and amount of the deposit. Sometimes these deposits are made sooner, but a bank has until the next business day to deposit at least a portion of the funds.

Banks will also hold checks to determine the legitimacy of the deposit, to thwart potential fraud and prevent potential losses from risky deposits. For a new account, the first $5,000 of a check will be available the next day but the remainder can be put on hold for as long as nine business days. (That’s nearly two weeks, for those of you keeping track at home.)

“If a customer has a high risk score, it gets a longer hold on the deposit to make sure the bank doesn’t lose money,” said Paul Rupple, director of marketing and project management at Digital Check, a check technology provider. A client with a low risk score and a long tenure with the bank could be rewarded with faster clearing and availability of funds, he said.

Under the Expedited Funds Availability Act of 1987, the first $200 of a check must be available the next day. Large deposits (those greater than $5,000) can be held for a “reasonable period of time,” between two and seven business days, depending on the type of check. Delays can also be the result of banks’ suspicion of the check’s credibility — such as those dated six months earlier — or if it is being deposited into an account open less than 30 days. Accounts with repeated overdrafts, and checks that were redeposited or never collected could take seven business days or longer to become available.

There’s hope for the check though, even if fewer people are using them. Credit cards are replacing checks in some cases, and the increase in the number of credit card payments exceeded the decline in check payments between 2009 and 2012, a 2013 Federal Reserve Payments Study found.

Checks are moving along quicker than they did more than a decade ago, Digital Check’s Rupple said. The Check Clearing for the 21st Century Act, also known as Check 21, was enacted in 2003 and enforces that banks must handle checks electronically for a smoother process. In the past, checks were physically delivered across the country. After the attacks on Sept. 11, 2001, when grounded air traffic stopped the delivery of checks, regulators determined there needed to be a better way, Rupple said.

Still, funds becoming available before a few days pass is possible. Exchanges between two people at the same bank can be done the same day, and mobile payments app Square can deposit funds in one to two business days for free — or instantly on weekdays, weekends and holidays for a 1% fee. Other newer options, such as Facebook Messenger and PayPal
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, can take days depending on the bank.

Governments have taken this initiative seriously. The United Kingdom passed legislation cutting the time of check clearing to two days by using photographs of checks and sending images electronically, according to a 2014 Telegraph article. Check clearing in the Philippines will be reduced to one day beginning in January 2017, its central bank stated in July.

For people living paycheck to paycheck, waiting for funds to be available can have severe consequences. They could end up being late with rent, car and bill payments, said Jay Fleischman, a consumer protection lawyer at law firm Shaev & Fleischman. Banks offer overdraft protection, which depends on their credit worthiness, but that could incur interest and additional costs if not balanced appropriately. Those who need to stay on a strict payment schedule should budget so they have the money necessary to meet their deadlines while they’re waiting for other funds to become available.

Don’t expect changes too soon, as they won’t be made until at least 2018, the Journal reported.

In the meantime, it’s also a good idea to deposit checks as soon as they are received, Fleischman said. Banks, usually known for their archaic technology, are starting to make it easier with smartphone apps that snap pictures of and then deposits checks.

“You can do it 24/7 so that you get that clearing process started more quickly,” he said. “A lot of people still think they have to go to a bank to deposit a check and they may not have time that day or can’t get off work when the bank is open. You can even do it from an ATM.”

The Faster Payments Task Force expects to release a two-part report about the proposals next year. The first section, to come in January, will include the group’s background, outline the inefficiencies of the current payments system and explain how a revised process could benefit everyone. The second portion, planned for mid-2017, will detail the proposals and offer strategies to develop these ideas.

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